2001 (5) TMI 48 - HC - Income Tax

Court Upholds Search & Seizure, Quashes Biased Assessments

The court validated the search and seizure conducted on the premises, upheld the panchnamas prepared by the respondents, and deemed the assessment ... Search And Seizure, Writ, Alternative Remedy Issues Involved:1. Validity of the search and seizure conducted on September 30, 1998.2. Validity of the panchnamas prepared by the respondents.3. Validity of the assessment proceedings and notices issued under section 158BC(a) of the Income-tax Act.4. Allegations of bias and mala fide actions by the investigating officers.5. The practice of appointing the investigating officer as the assessing authority.Detailed Analysis:1. Validity of the Search and Seizure Conducted on September 30, 1998:The petitioners challenged the search and seizure conducted on their premises, claiming it was illegal, arbitrary, and without jurisdiction. They argued that the Director of Investigation had no reasonable information to form a belief justifying the search under section 132 of the Income-tax Act. The court referred to section 132(1) of the Act, which mandates that the Commissioner must have reasonable information before issuing search warrants. The Supreme Court's rulings in ITO v. Seth Brothers and other cases were cited, emphasizing that the exercise of power under section 132 must be based on proper and relevant material. The court concluded that the Director of Investigation had reasonable information and recorded reasons before issuing the authorization, thus validating the search and seizure.2. Validity of the Panchnamas Prepared by the Respondents:The petitioners alleged that the panchnamas prepared by Dr. Navaljit Kapoor and Harinder Kumar were false and fabricated. They claimed that the presence of certain individuals was incorrectly recorded and that the warrants of authorization were not shown. The respondents countered that the panchnamas were correctly prepared and that any errors were minor and did not affect the validity of the search. The court did not find sufficient evidence to quash the panchnamas, as the errors cited by the petitioners were not substantial enough to invalidate the search.3. Validity of the Assessment Proceedings and Notices Issued Under Section 158BC(a) of the Income-tax Act:The petitioners argued that the assessment proceedings were void ab initio due to the lack of valid service of legal notices under section 158BC(a). They also claimed that the notices issued to the partnership firms were invalid as no warrants were issued against them. The court noted that the assessment proceedings had been completed and appeals were pending. It emphasized that when an alternative remedy is available, the High Court would ordinarily refrain from exercising its writ jurisdiction. The court did not delve into the validity of the notices, suggesting that the petitioners should raise these issues in their pending appeals.4. Allegations of Bias and Mala Fide Actions by the Investigating Officers:The petitioners alleged that the investigating officers threatened them and demanded concealed money, creating a bias. They also argued that appointing the investigating officer as the assessing authority violated the principles of natural justice. The court examined the principle of nemo judex in causa sua potest, which states that no one should be a judge in their own cause. It cited several Supreme Court judgments, including A. K. Kraipak v. Union of India, to emphasize that bias or the appearance of bias disqualifies an adjudicator. The court found that respondent No. 5, who conducted the search, could not act as the assessing officer for petitioners Nos. 2 and 4 due to reasonable apprehension of bias. Consequently, the assessment orders for petitioners Nos. 2 and 4 were quashed.5. The Practice of Appointing the Investigating Officer as the Assessing Authority:The petitioners contended that appointing the investigating officer as the assessing authority violated Article 14 of the Constitution of India. The court agreed that this practice could lead to bias, as the officer who conducted the search would have a preconceived opinion. It reiterated the principles of natural justice, emphasizing that fairness should be the hallmark of all decisions. The court concluded that respondent No. 5, who headed the raiding party, could not be the assessing officer for petitioners Nos. 2 and 4, as it would create a reasonable apprehension of bias. However, this principle did not apply to the other petitioners, as respondent No. 5 was not directly involved in their searches.Conclusion:The court quashed the assessment orders and proceedings for petitioners Nos. 2 and 4 due to reasonable apprehension of bias by respondent No. 5. However, it upheld the validity of the search and seizure, the panchnamas, and the assessment proceedings for the other petitioners, suggesting that they pursue their grievances through the pending appeals. The practice of appointing the investigating officer as the assessing authority was deemed inappropriate in cases where it could lead to bias.